Europe: "€1 Trillion May Not Be Enough"

Tyler Durden's picture

A core piece of last week's European newsflow was that following much pushback, Angela Merkel, who understands the underlying math all too well, finally dropped her opposition to expanding the European "firewall" in the form of a combined EFSF and ESM rescue mechanisms, to bring the total "firepower" to €800 billion (ignoring for a moment that when the true dry powder of the combined vehicle is just about €500 billion net as explained here, hardly enough to rescue Spain, let alone Italy). Yet as has been explained here repeatedly, and as Merkel has figured out, this is easily the most symbolic expansion of a rescue facility ever. Because while the ECB's agreement to allow Eurobanks to abuse its €1 trillion discount window for three years (which is what the LTRO is), following the replacement of JC Trichet with a Goldman apparatchik, at least infused the system with $1.3 trillion in new fungible liquidity (and resulted in a stock market performance boost for the ages, one which is now unwinding), the 'firewall" does not represent new money, nor is a "firewall" to begin with - it is merely one massive contingent liability which will remain unfunded in perpetuity. Slowly the German media is waking up, and in an article in Der Spiegel, the authors observe that "Even a 1-Trillion Euro Firewall wouldn't be enough." And they are correct, because the size of the firewall is completely irrelevant, as explained later. All the "firewall" does is shift even more backstop responsibility on the only true AAA-country left in the Eurozone, Germany. However, the main cause of problems in Europe - a massive debt overhang which can at best be rolled over but never paid down due to the increasingly lower cash flow generation of Europe's (and America's) assets, still remains, and will do so until the debt is finally written down. However, it can't because one bank's liability is another bank's asset. And so we go back to square one, which is that the system is caught in the biggest Catch 22, as we explained back in 2009. We are glad to see that slowly but surely this damning conclusion is finally being understood by most.

From Spiegel:

European finance ministers meeting in Copenhagen on Friday agreed to boost the euro-zone firewall to over 800 billion euros. The move marks another U-turn on the part of the Merkel administration, which recently dropped its opposition to increasing the fund. German commentators warn that even the new firewall may still be too small.


Austrian Finance Minister Maria Fekter announced on Friday that the permanent euro rescue fund, the European Stability Mechanism (ESM), would be expanded, by considering the around €200 billion in current bailouts as being separate from the €500 billion earmarked for the ESM -- originally, the €500 billion figure was to have included the €200 billion in existing aid. The ESM, which is due to come into operation in mid-2012, will also be boosted by including around €100 billion in bilateral aid that was given to Greece in 2010, as well as aid from other EU funds, bringing the firewall's total capacity to over €800 billion.


Fekter expressed her confidence that Friday's move would be enough to calm the financial markets. "The markets are already signaling relative calm," she said. "That shows that the markets can work with what we have set up here."


The Nuclear Option


On Thursday evening, in the run-up to Friday's summit, German Finance Minister Wolfgang Schäuble had said he was prepared to combine the existing bailouts with the new permanent mechanism. He said that the €800 billion capacity was "convincing" and "sufficient."


But not everyone shares his view that the sum is enough. On Thursday, French Finance Minister François Baroin called for the permanent euro bailout fund to be increased to €1 trillion, to shore up market confidence and prevent contagion in the euro crisis. "The firewall, it's a little like the nuclear option in military planning, it's there for dissuasion, not to be used," Baroin said in a radio interview. He was echoing calls made by the Organization for Economic Cooperation and Development (OECD) earlier in the week to boost the firewall to €1 trillion.

The German press is also finally starting to wake up:

The center-right Frankfurter Allgemeine Zeitung writes:


"It is to be doubted whether all members of the Bundestag actually understand the financial dimension and the technical details of the ESM. It doesn't help matters that the federal government has repeatedly shifted its position on this issue -- as the SPD's floor leader Frank-Walter Steinmeier rightly pointed out."


"But the entire euro rescue is a balancing act. On the one hand, fiscal discipline needs to be promoted. The pressure on the crisis-stricken euro-zone members to carry out reforms must not be undermined by the knowledge that, if they fail, they will be caught by a financial safety net. On the other hand, there is the need for solidarity. Those countries that are in a better position can 'help the others to help themselves,' as Schäuble put it."


"As always in the EU, these things lead to compromises in practice, which also explains why the government has readjusted its position on the ESM. The high ratings that Merkel enjoys in the polls may be related to the fact that the Germans seem to intuitively understand this delicate maneuver."


The left-leaning Die Tageszeitung focuses on the calls to boost the ESM to €1 trillion:


"A trillion! That's how much money France is now demanding for the euro rescue fund. Until now, Chancellor Angela Merkel only wanted to come up with €700 billion. On the surface, it looks as if a Franco-German showdown is on the horizon. In fact, it is nothing more than a PR battle, where nothing is really new. It was already clear last summer that the existing EU rescue fund, the EFSF, was much too small to save Italy or Spain in an emergency. Even then, people were talking about €1 trillion as a target."


"One trillion euros is a lot of money, and yet even this huge sum will not be enough. But again, that's nothing new. For months, calculations have been doing the rounds that show that at least €1.5 trillion will be needed. The only interesting question left is how long it will take France and Germany to acknowledge this reality."

The last observation is off on the right track but is nowhere near close enough to the true conclusion, which was stated here yesterday by Mark Grant:

The Firewall Lie


Whether some proposed firewall is $760 billion or $1.3 Trillion or $13 Trillion makes no difference as in zero, nada, nothing and null. It is an IOU, a promise to pay and it is not counted in any European sovereign debt numbers nor is it counted in the figures for the European Union’s debt. It will not stop Spain or Portugal or Italy from asking for or needing money. It will not stop contagion nor will it protect any nation from the calamities of another nation. If approved by the Finance Ministers it is not approved by the European Parliaments and even if approved; it accomplishes nothing besides one more unaccounted for contingent liability that is nowhere to be found on anyone’s books. This whole discussion is a head fake, a deception and a ruse carefully plotted out for investors in one more attempt to mislead the entire world. If you wish to be a statistic in the Greater Fool Theory be my guest but I refuse to be apart of this unadulterated scam.

In other words, the next time a crisis flares up, the only thing that will delay the unwind, as the LTRO 1 and 2 did in late 2011, is another fresh injection of liquidity, whether in exchange or not for worthless collateral which was unused to begin with, as only new money can delay the unwind.

Of course, with every new trillion in incremental cash, now that central bank balance sheets are growing exponentially, more and more is now spilling over into hard assets, despite a clogged monetary transmission mechanism. The longer Europe's farcical crisis continues, the more the status quo will have to fight tooth and nail to prevent an explosion in hard asset prices expressed in fiat. This is a fight they will lose.

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Scalaris's picture

"totally unexpected"

vast-dom's picture

i have zero € sympathy. if any small business or individual attempted to salvage their untenable dealings such as EuroZone, they would be assed out on the street in no time. Why are we wasting our lives and energy on a bunch of shitheads running shitty institutions? This is insanity. 

jcaz's picture

I don't blame them- it's not like Uncle Bennie and Little Timmy are ever gonna say "no"........

Bicycle Repairman's picture

This is all kabuki to mollify German voters.  Same as the kabuki we had here.  They'll just keep boiling German frogs and shoveling money into the black hole.  If necessary, Bernanke will pick up a shovel, too.  The banks will be saved.  EOS.

John Wilmot's picture

Well said.

There are 2 eternal truths re the EU to always keep in mind:

1. The EU will not collapse - it will become a full political union as intended from the start.

2. No amount of human suffering or popular opposition will stand in the way of this agenda.

...everything else is noise.

Manthong's picture

This insanity is like drinking for some folks…

One trillion is too much and 10 trillion is not enough

AldousHuxley's picture

Europe ain't shit without her former colonies in Africa, India, and China, Egypt, Turkey, etc.


Eurotrash must pick up their own trash.

Marco's picture

What then is the US without it's militarily/terror maintained colony Saudi Arabia? (Really a war in Iran would be disastrous for the US, if the bogey man is lost only the threat of direct force will keep Saudi Arabia handing out cheap oil for dollars.) The Eurozone is closer to being able to pay it's own way (trade balance wise) than the US.

AldousHuxley's picture

didn't say US wasn't an empire.

in fact that's what New World Order is all about.

Old world order = europe and her colonies

New world order = US and her colonies (China = manufacturing, Mexico = food production, India = backoffice, Middle East = oil)


US acts as the mafia protector with her military and collects taxes from colonies via wall st. US is aiming for monopoly over world food and energy production to complete the empire's full glory.

but Iran is getting in the way. and China, Russia have progressed in technology to challenge US. Do you wonder why there is a sudden push for STEM????   US needs more STEM grads to come up with better drones and such becuase Russia, China, Iran already hacked that.

The Big Ching-aso's picture



It's gonna be a real monster when it hits a godzillian.  It'll be mothra enough I think.

Michael's picture

This is why we buy police protection; To keep this from happening to us.

Breakfast in Collinsville (with Michael Reichert)

My lottery number recently came up;

How much longer do we have to put up with this happy horseshit in America?

I recently got pulled over and given 3 tickets in Cape Coral, FL where I'm a property owner and pay taxes for the local police department, driving the same route every night going home from work at near driving perfection around 12 midnight and virtually no cars on the road in Cape Coma.

I plan on making a video just like this for Youtube to show people the absurdity of having to put up with this from our employees.

Oh regional Indian's picture

Crazy story.

For a while in the US I had a VW Scirocco and every small town cop would tail me,  hoping I'd lose control on my right foot and catch me.

I used to drive @ 25 in a 40 MPH zone just to get under their skin.

Cops work for Corporation USA and it's Sub-Divisions. Sub-Divisions.... COmpany Divisions? No co-incidence there.

AND, 1 Trillion Euro is intended to be Not Enough. Always jusssssst not enough. Juuuust a leeeedle more and we'll be over the hill.




jcaz's picture

VW Scirocco?  

Dude- the cops were following you, waiting to pick up parts that were gonna fall off and cite you for littering.....


Oh regional Indian's picture

jcaz, for the money I had then, that car was AWESOME! And yup, cops tailed, it was er... slightly modded.

Had to sell it for rent money as I slid down the great american jobless rabbit hole without the net of any social security. Heckkkk of a ride. Anyways, The Roc was a blast in my past.


Sudden Debt's picture

As a european I say: let it all burn and crash!

Jim in MN's picture

Your arms are not too big to flail!  Flail away!

r00t61's picture

You just perfectly summed up "Too Big To Fail."

non_anon's picture

Radio Zero, where are you on a Saturday Night?

Azannoth's picture

Merkel is a Socialist/Statist at heart despite calling her self conservative, this is not about money and Merkel knows it, it's about the preservation of the Collectivist ideology in Europe they will push this to the breaking point untill we see a 2nd Hitler or worse Ascending. They didn't learn from history, jewish rule/dominance always leads to 1 Final Solution sooner or later it's innevitable ..

Ghordius's picture

yes, we on the Eurasian continent are less individualistic than you Anglo-Americans, and even the Brits and the US coasts are less individualistic that you - I'm presuming you are an inhabitant of "Red America". Old World/New World.

so what? how many are you? how much greater is the part of humanity that thinks you are slightly on the loony side? reality check? ;-)

Azannoth's picture

No I was born in Eastern Europe(less than 30 years ago) currently residing in Wester Europe :)

But I agree with your observation, people of Europe tend to have a collectivist attitude, while people of America are/where the Europeans who could no longer stand this attitude on the Old Continent, I wish I could leave Europe too but atm I am stuck here .. at least for a few more years

knukles's picture

Ah, contempt prior to investigation.

Ghordius's picture

ah, I always forget you guys - sorry, from my heart. IMHO, having a few armies rolling over your lands every half generation gives a more "collective" attitude than if you live on islands or on some very isolated region.

I wish I had more knowledge of your generation of Eastern Europeans. I understand your older generations better, but you post-Berlin Wall I don't "get". May I ask where you would like to go if you could?

disabledvet's picture

try the West. Just remember..."they have the same attitude towards gold as everyone else now":

Ghordius's picture

Your nick "Azannoth", your avatar with Death with a doble-bladed reaper, I would have thought

1. under 30; 2. gamer; 3. interested in the occult; 4. North or South American; 5. Uni-degree; 6. technical work, perhaps IT; 7. rock music

as you see, I don't "get" the younger generations of eastern europeans - as I find out everytime I go there, just shortly in Odessa and Budapest.

perhaps because your age-cohort spends a lot of time on the internet? I remember when a photocopier was taboo in your parts... ah, the memories!

Azannoth's picture

You got most of it right! But I am not representative of my background country nor generation I am a free thinker anarchist(politically) capitalist(economically) hedonist rationalist atheist individualist (racist/nationalist(socialy) - and no there's noting to be ashamed of) not many people walk this Eearth that have my degree of hmmmm intelectual freedom to play with maybe that's why I have next to none real life friends and am forced to haunt places like ZH

Ghordius's picture

ah, I'm also not representative of mine... but since I'm older I'll give you a tip (compulsive senile liberty): cherish your friends, even if you have few

no, nothing to be ashamed of, I agree - though free thinking and anarchist is though bread - basically it's always them getting in the way ;-)

racist? how this? nationalist I can "grok", I see it as a counterflow after all the communist and I expected it, but racist? don't understand...

Azannoth's picture

by racist I mean Darwinist and Eugenicist, something that was mainstream at the beginning of the 20th century, I reject the mixing of races(for the larger part) and helping genetically inferior people(ie. born with genetic disorders etc.) and see competition for survival between races and nations and individuals as essential to the survival of the human race in general - a modern day Spartan Warrior

LowProfile's picture


If indeed your aim is improvement of the gene pool I suggest you brush up on your evolutionary biology.

I won't suggest the low hanging fruit (perpetual abstinence)....  Due to the near certainty your 'tude is a learned "present" from your 'rents (as opposed to a genetic trait).  Perhaps you will outgrow it...

TNTARG's picture

I see people like you as basically barbarian. What u define as "essential to the survival of the human race in general" looks to me like the path towards extinction. Be my guest. Happy to be so far away...

Ghordius's picture

Eugenicist. Ok, ok, not long ago I would have started a big fight because of this, but recently I've found some interesting scientific studies that point to a genetic souce of xenophobia and xenophily, so I'll rest on this - funnily it "fits" to the model I have in my head, the communists suppressed too much this kind of thinking

nationalist, now on this I have a question: are you aware of this ratio to explain how big government is? by determining how much the State Quota is, i.e. what part of the GDP is spent by government?

what range is for you ok? most western european nations are hovering between 30% and 50%... less, or much less? sorry if I'm nosy, but I sense an anarchist vs. nationalist dilemma...

Azannoth's picture

Government not bigger than 5%-10%(in times of peace), I am a nationalist only in terms of genetic(racial) similarity not political/religious/social or geographical boundaries

anarchist(politically) vs. nationalist(socially) - it's not hard at all to square this circle, anarchism comes from the individualist consciousness while nationalism comes from the selfish-gene

skepticCarl's picture

How is it that you speak English so well?  It just pisses me off to no end to hear non-native speakers expressing themselves so well, better than me, actually, in my native tongue.

Azannoth's picture

English is my adoptive language(adopted by me, not that i was adopted or anything) and I nearly forgot my mother-tounge(also by choice as it no longer serves any purpose)

Western's picture

And yourself?

1. Smarter than the average person.

2. Douchebag. Specifically, racially, nationally, and genetically influenced.


I have more but I'd just be emulating you if I continued, no thanks.

ChrisFromMorningside's picture

Pentagon requests more "aid" for Israel from U.S. Congress to pay for Iron Dome missile system.

smb12321's picture

The best explanation (by far) is from the British blog, "The Slog", who has inside contacts within the much-reviled EU.  His knowledge of the disreputable ins and outs of that disastrous entity are great.  His writing is very "British" but warning - comments are regulated and such things as "go bitchez" are not allowed.  Think of a top hat, stiff drink and steely resolve.

Ghordius's picture

oh, I love the Slog and I think he is intellectually very honest - though yes, his point of view is very British and he still does not "grok" us Continentals - sometimes he gets the pieces, assembles them and then somehow gets the completely wrong conclusions... you can't get far on a "crime scene" if you get the motives wrong

Ghordius's picture

a fresh pearl from the Slog:

"There are times when even an anti-conspiricist like me has to wonder about the Anglo-American business MSM, and whether there are some things they just won’t print. Rupert Murdoch loathes the EU and would do anything to sink Britain – hence the WSJ coverage. But most of them seem at times to look the other way when this kind of stuff happens."

Yes, Ruppie loathes the EU, this is clear - but his war in Britain is against the monarchy, not the country. Sloggie already forgot how King Rupert chastised the Parliamentary Commission on his last visit...

smb12321's picture

I thought he (Slog) meant that Rupert would do anything to sink the UK's association with the EU.  I guess it's all interpretation.

John Wilmot's picture

Close your eyes and think of England...

phungus_mungus's picture

And this is supposed to shock us how? 

Zero Debt's picture

ZH 2013: "€1 Trillion May Not Be Enough"

ZH 2013: "€10 Trillion May Not Be Enough"

ZH 2014: "€100 Trillion May Not Be Enough"

ZH 2015: "€1,000 Trillion May Not Be Enough"

ZH 2016: "The ECB Riot Cam Has Arrived"

Sam Clemons's picture

Imagine just how bad this crisis would be if we didn't have the ability to create debt out of thin air?

wee-weed up's picture

Helicopter Ben, is that you?

Tsar Pointless's picture

This here is my surprised face.